It’s not a revenue problem. It’s a revenue problem.

Opinion

Hey there, time traveller!
This article was published 11/02/2013 (4591 days ago), so information in it may no longer be current.

Optics are a funny thing in politics. Thanks to attack ads, talking points, Question Period rhetoric and good old-fashioned retail political manipulation, we develop certain impressions of politicians, parties and even government. These impressions could be well-earned and accurate. Or they could be completely unfair. Sometimes the only way to really assess the labels we put on politicians is to look at the hard numbers.

That’s not always a panacea for accuracy. But it can be the stuff of great debate.

Consider that last week, Federal Finance Minister Jim Flaherty offered a fiscal update that essentially framed his continuing deficit worries as a “revenue problem.”

It was a surprising shift in lexicon for Flaherty and the Conservative government. Going into the current fiscal year, Flaherty had earned the label of a hard-line fiscal manager thanks to significant spending cuts and civil service reductions.

Last fall, however, his rep took a bit of a bodyslam when Flaherty had to conceded the deficit for this year was going to be larger than budgeted for, not smaller as he had projected.

In his speech last week to Ottawa business leaders, Flaherty carefully laid out his dilemma: economic growth was generally less than he had hoped, but specifically, Ottawa has seen considerably less corporate income tax than expected. This was primarily the result of significantly lower Alberta crude oil prices. In most years, Alberta crude runs about $15 below the top price for West Texas crude. The higher processing costs are normally to blame. This year, Alberta black gold is running at times $40 less than the Texas price. That means lower earnings in Canada, and less taxes for Ottawa, and a growing deficit. 

I can easily agree that Flaherty right now has a revenue problem, not a spending problem. I think the case he makes for forces beyond his control are fair and reasoned — especially in light of the fact he did try to slow spending in his last budget. We should expect more efforts in that regard in the upcoming budget.

In Manitoba, the fiscal scenario is quite similar although the rhetoric is considerably different. Here, Manitoba Finance Minister Stan Struthers also saw his deficit grow despite efforts to cut spending in certain areas to slow overall expenditures. However, here most critics will argue that Manitoba has a spending problem, not a revenue problem. 

In an effort to perhaps see if any of these labels — good or bad — are warranted, I offer you a fairly simple comparison of the federal and provincial treasuries. Attempts to compare the province with the federal government will surely prompt some partisan heads to implode. However, there is some interesting stuff here.

To get to the heart of the matter, I have looked at several performance markers as percentages of total expenditures. If any government has a spending problem, surely this would dredge up some of the empircal evidence.

To aid the comparison, it’s important to note that almost none of the governments in Canada spent less this year than the previous year. Still, most did identify a target for budget cuts to slow overall spending. The following chart look at expenditures as expressed in the 2012-13 budget, and then identifies budget cuts and total deficit as a percentage of total expenditures. Expenditures are from last year’s spring budgets; the deficit figures are the latest available. For Manitoba, I left out the $70 million or so the province hopes to earn from the sale of assets, because it’s not part of the spending equation.

To finish off, I calculated the total increase in deficit as a percentage of original deficit target, and as a percentage of total expenditures.

 

CANADA

Total Expenditure: $276 billion

Total Cuts (% of total exp.):  $5.2 billion (1.88%)

Total Deficit (% of total exp.): $26 billion (9.4%)

Deficit increase/decrease (% of total original deficit): + $5 billion (+23.81%)

Deficit increase/decrease as % of total expenditures: 1.88%

 

Manitoba 

Total Expenditure: $11.6 billion

Total Cuts (% of total exp.):  $128 million (1.1%)

Total Deficit (% of total exp.): $576 million (4.96%)

Deficit increase/decrease (% of original deficit): + $107 million (+22.81%)

Deficit increase/decrease as % of total expenditures: 0.92 %

 

The analysis: In relative/percentage terms, Ottawa did cut a bit deeper but the growth in its deficit was a bit bigger than Manitoba. However, interestingly, total deficit as a percentage of expenditures is much bigger in Ottawa than it is in Manitoba. And the increase in the deficit experienced this year, as a percentage of total spending, was double federally. 

What does it mean? The aforementioned partisans will no doubt see pro-something or somebody in this analysis. However, I think it really does show that there is more commonality to the fiscal woes being experienced by governments across Canada than some leading critics would like to believe. This is a tough time to govern, and no single government is showing greater success than the others.

That is demonstrated by the fact that so few jurisdictions saw their deficits go down this year, although Ontario was a notable exception in large part because its deficit was just so out of control to begin with. Alberta led the league in deficit growth, with an almost unbelieveable 248 per cent increase ($3 billion from $886 million) in its current deficit. This because of the same unusually low oil prices, which by some estimates may leave Alberta $6 billion less in its kitty by year’s end. That also seems like a revenue problem.

So, these numbers neither criticize nor applaud any government. If the numbers have any value, it is to show that most of the governments in this country are basically standing in the same pot of glue. And that deficit fighting, if we want to protect our core government services, will require a steady and significant increase in economic growth.

In other words, it’s not just a revenue problem. Just mostly a revenue problem.